Daily Currency Update
As the Federal Open Market Committee’s (FOMC) decision to defer rate hike expectations led many industry experts to bet that the Bank of England (BoE) would also refrain from raising interest rates for the foreseeable future, the Pound slipped against several of its rivals on Friday. BoE official Andy Haldane also indicated that interest rates could be cut in order to compensate for growing global economic headwinds. However, Sterling advanced against the Euro and US Dollar on Monday in response to the news that the Hinkley Point nuclear power project will go ahead with backing from China. The UK’s Rightmove House Price report also revealed a sturdy increase in property values in September.
Speculation that the European Central Bank (ECB) could be gearing up to loosen fiscal policy in the near future in order to keep the Eurozone competitive left the Euro a little softer before the weekend. While the common currency derived some support from the news that Alexis Tsipras was re-elected as Greek Prime Minister on Sunday, the Euro fell against the Pound as Monday’s European session opened and the German Producer Price Index printed below forecast levels.
Last Thursday the Federal Open Market Committee (FOMC) delivered its interest rate decision. Policymakers voted to leave interest rates on hold and the tone of the statement accompanying the decision left some industry experts suggesting that borrowing costs may stay static until next year. The dovish sentiment put the US Dollar on the back foot for the rest of last week and the ‘Greenback’ has the potential to extend declines against peers like the Pound and Euro if this week’s US reports fall short and keep 2015 rate hike hopes depressed.
The ‘Aussie’ fluctuated against rivals like the Pound, Euro and US Dollar at the tail end of last week as the FOMC decision first increased and then decreased demand for commodity-driven and higher-risk currencies. A general risk-off environment, sparked by the FOMC’s China-related commentary, saw the AUD to USD, GBP currency pairs extend losses on Monday. China’s MNI September Business Indicator also fell from 56.0 to 51.3.
New Zealand Dollar
Risk aversion and poor data for New Zealand saw the ‘Kiwi’ shed 1% against the Pound on Monday. New Zealand’s Westpac Consumer Confidence index for the third quarter fell from 113.0 to 106.0. Net Migration also declined in August. The nation’s Credit Card Spending report detailed acceleration in spending on an annual basis but a decline in spending on the month.
Sterling initially fell against the Canadian Dollar on Friday as the prospect of the US adopting ultra-low interest rates for longer supported commodity-driven currencies. However, bets that the value of Canada’s main commodity (crude oil) will continue to slide led to the ‘Loonie’ giving up gains. Canada’s CPI confirmed that the pace of annual inflation held at 1.3% in August. As the result was in line with forecasts its impact on Canadian Dollar trading was minimal.
South African Rand
After rallying to a three-week high against the US Dollar on the back of the FOMC’s dovish attitude towards the US interest rate outlook, the Rand fell on Monday. The South African currency could experience notable volatility later this week as domestic inflation data is published and the South African Reserve Bank delivers its interest rate decision.